PDUFA, the Prescription Drug User Fee Act, is a shining example of a Pareto optimal policy innovation.  First passed in 1992 the act was essentially a deal between the drug manufacturers and the FDA that said we, the manufacturers, are willing to pay an extra tax for submitting new drug applications to the FDA so long as the tax is earmarked for hiring more FDA staff to accelerate new drug review. 

Critics of PDUFA claim that it has reduced safety and made the FDA a "servant of industry."  It’s true that to avoid conflicts of interest it might have been better had Congress funded the FDA at optimal levels but when has Congress ever done anything optimally?  Prior to PDUFA millions of dollars in pharmaceutical
investment was regularly being held in limbo for want of a much cheaper FDA reviewer. 

A new working paper from Tomas Philipson and co-authors presents the most sophisticated cost-benefit analysis of PDUFA.  They find that PDUFA did increase manufacturer profits and reduce FDA review times.  Moreover, they find no evidence that safety declined under PDUFA.  Most importantly faster review times meant big gains for consumers which they evaluate as equivalent to savings of 180 to 310 thousand life-years.


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